The comeback of Trump’s trade tactics

Donald Trump's second term in office may have surprised some, but what hasn’t been surprising is the return of his signature economic strategies: deregulation, tax cuts, and most notably tariffs. While the details of his policies are still unfolding, one thing is certain: we are heading into another wave of economic protectionism.

The role of tariffs in the US economy

Historically, tariffs have been a major revenue source for the United States, once accounting for as much as 90% of the federal income. Fast forward to 2024, and that figure has dropped to just 1.57%. But beyond revenue, Trump sees tariffs as a strategic economic tool, tightly linked to national security and immigration policies.

Tariffs are designed to protect domestic industries, but they come with a cost. Retaliatory measures from trade partners, disrupted supply chains, and rising prices for businesses and consumers are just some of the unintended consequences. An example is the Smoot-Hawley Tariff Act of 1930, which aimed to shield US industries during the Great Depression. The result? Other nations hit back with tariffs of their own, making the economic crisis even worse.

The first-term trade wars: lessons learned?

During his first term, he aggressively pursued tariff policies, imposing duties on imports from China, the European Union, Mexico, and Canada. Steel and aluminium tariffs ranged from 10% to 25%, aimed at boosting US manufacturing. But the outcome was mixed. Trade partners retaliated, costs soared for American businesses and consumers, and investors fled to safer assets like bonds. Industries reliant on global supply chains, such as car manufacturers and tech firms, took a hit.

Even when Joe Biden took office, many of Trump’s tariffs remained in place, as the US continued to address trade imbalances. Now, with Trump back in the White House, it would appear that he’s doubling down.

What’s happening now?

Trump has already imposed a fresh 10% tariff on Chinese imports, raised the aluminium tariff to 25%, and maintained the steel tariff at 25%. While tariffs on Mexico and Canada are currently on hold, the European Union could be the next target. Trump argues these measures will create jobs and strengthen US industries, but economists warn they could lead to higher consumer prices, inflation, and even job losses in sectors dependent on global trade.

In the short term, tariffs could drive inflation higher. But as demand slows, the longer-term impact could be deflation and sluggish economic growth.

What this means for South Africa

For now, South Africa isn’t directly impacted by these tariffs. However, we are not immune. Our trade relationship with the US is largely governed by the African Growth and Opportunity Act (AGOA), which grants duty-free access to American markets. But AGOA is up for review in September, and given today’s geopolitical climate, our position is anything but certain.

Losing AGOA or facing higher tariffs could hit key South African industries hard especially automotive manufacturing and textiles, which rely heavily on US exports.

The broader economic impact

Tariffs don’t just impact trade—they also have ripple effects on monetary policy. The South African Reserve Bank (SARB) is closely monitoring how global trade tensions could affect the local economy. A sharp depreciation of the rand due to tariff hikes could push inflation higher, forcing the SARB to raise interest rates. That would pile more pressure on households and businesses, creating a cycle of economic strain and slower growth.

Preparing for an uncertain future

Trump’s economic strategy may aim to put “America First,” but the global economy doesn’t operate in a vacuum. For South Africa and other trading nations, the challenge is to adapt and respond effectively to these changes. With AGOA under review and tariffs on the rise, the months ahead could be decisive for our trade future. Staying informed and flexible will be key to managing the uncertainty ahead.